When buying an investment property, understanding the fees and costs associated with variable rate investment loans is crucial for your property investment strategy. Whether you're purchasing your first investment property or expanding your investment property portfolio, having a clear picture of all expenses helps you make informed decisions about your rental property loan.
Understanding Variable Interest Rates for Investment Properties
Variable interest rates fluctuate with market conditions, meaning your investment loan repayments can change over time. When calculating investment loan repayments, it's important to factor in potential rate increases. Variable rates often start lower than fixed interest rates, but they carry the risk of rising during your loan term.
The Investment Loan Interest Rate you receive depends on several factors:
• Your borrowing capacity and financial situation
• The loan to value ratio (LVR) of your purchase
• Whether you're buying a town house, apartment, or stand alone dwelling
• Your existing relationship with lenders
• Current property market conditions
Many lenders offer interest rate discounts for investment loans, particularly for borrowers with strong financial profiles or those taking larger loan amounts.
Key Fees and Costs to Consider
Application and Establishment Fees
Most lenders charge fees during the investment loan application process. These typically range from $300 to $800 and cover the cost of processing your application and setting up your loan. Some lenders waive these fees as part of promotional offers or for borrowers with substantial deposit amounts.
Lenders Mortgage Insurance (LMI)
If your loan to value ratio exceeds 80%, you'll likely need to pay lenders mortgage insurance (LMI). This protects the lender if you default on your loan. LMI costs vary based on your loan amount and LVR, potentially adding thousands to your upfront costs when buying a rental property.
Ongoing Monthly Fees
Variable investment loans often include monthly account keeping fees, typically ranging from $10 to $15 per month. While these might seem minor, they add up to $120-$180 annually and should be factored into your rental yield calculations.
Valuation and Legal Fees
When you research property and make an offer, lenders require professional valuations to confirm the property's worth. Valuation fees typically cost $300-$600. Legal fees for property settlement vary by state but generally range from $800-$1,500.
Additional Property Investment Costs
Stamp Duty
Stamp duty represents a significant cost when buying an investment property. Rates vary by state and property value, with investors typically paying higher rates than owner-occupiers. In New South Wales, where The Ponds is located, stamp duty for investors can be substantial, particularly for higher-value properties.
Ongoing Property Expenses
Beyond your loan costs, factor in:
• Property management fees (typically 5-8% of rental income)
• Council rates and water charges
• Insurance premiums
• Maintenance and repairs
• Vacancy periods affecting rental income
These expenses impact your negative gearing calculations and overall investment returns.
Investment Loan Options and Features
When you access Investment Loan options from banks and lenders across Australia, you'll find various features that can affect costs:
Offset Accounts
Some investment loans offer offset accounts, which can reduce interest charges. However, these accounts sometimes carry monthly fees that may outweigh their benefits depending on your balance.
Redraw Facilities
Redraw facilities allow access to extra repayments you've made. While useful for property investors, some lenders charge fees for redraw transactions.
Interest-Only Periods
Many investment property loans offer interest-only repayment periods, typically for 1-5 years. While this reduces initial repayments, you'll pay more interest over the loan's life.
The Application Process and Associated Costs
Applying for a investment loan involves several steps, each potentially carrying costs:
- Documentation gathering - Banks statements, tax returns, and employment verification
- Property research and selection
- Formal application submission
- Property valuation
- Loan approval and settlement
Using a streamlined application process through experienced brokers can help minimise delays and associated costs.
Maximising Your Investment Strategy
To invest in real estate successfully, consider how loan costs impact your overall returns. Factor all fees and expenses into your rental yield calculations. Understanding negative gearing benefits can help offset some costs through tax deductions.
When expanding your investment property portfolio, established relationships with lenders may provide access to better rates and reduced fees.
Variable rate investment loans offer flexibility but require careful consideration of all associated costs. From application fees and LMI to ongoing charges and property expenses, understanding these costs helps you make informed investment decisions. Professional guidance ensures you access suitable investment loan options while minimising unnecessary expenses.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan needs and explore options tailored to your situation.